UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________
Commission File Number: 1-7558
LAWTER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-1370818
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
990 Skokie Boulevard; Northbrook, Illinois 60062
(Address of principal executive offices)
(708) 498-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock $1.00 par value per share - 45,038,988 shares outstanding as
of July 31, 1995.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual
report on Form 10-K. In the opinion of the Company, all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position of Lawter International, Inc. and Subsidiaries as of June 30,
1995 and December 31, 1994 and the results of their operations for the three
months ended June 30, 1995 and 1994, and the six months ended June 30, 1995 and
1994, and the statements of cash flows for the six months ended June 30, 1995
and 1994, have been included. It should be noted that these interim statements
are based on certain annual estimates such as the final level of LIFO
inventories and the provision for income taxes. These and other similar items
may be subject to year end adjustments. The results of operations for such
interim periods are not necessarily indicative of the results for the full year.
Lawter International, Inc. and Subsidiaries
Condensed Statements of Earnings
(Shown in thousands)
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
Net Sales $ 50,009 $ 44,415 $102,498 $ 87,029
Cost of Products Sold 36,690 30,744 74,182 60,485
-------- -------- -------- --------
$ 13,319 $ 13,671 $ 28,316 $ 26,544
Selling, General and
Administrative Expenses 5,285 5,319 10,819 9,795
-------- -------- -------- --------
$ 8,034 $ 8,352 $ 17,497 $ 16,749
Investment Income 1,492 1,132 2,958 1,835
-------- -------- -------- --------
Earnings before Income Taxes $ 9,526 $ 9,484 $ 20,455 $ 18,584
Provision for Income Taxes 2,476 2,459 5,315 4,834
-------- -------- -------- --------
Net Earnings $ 7,050 $ 7,025 $ 15,140 $ 13,750
======== ======== ======== ========
Earnings per Share of
Common Stock (Note 2) $ .16 $ .16 $ .34 $ .31
Dividends per Share of
Common Stock $ .10 $ .10 $ .20 $ .20
Weighted Average Shares
Outstanding 45,018 44,858 44,981 44,839
The accompanying notes to the condensed financial statements are an integral
part of these statements.
-2-
<PAGE>
Lawter International, Inc. and Subsidiaries
Condensed Balance Sheets
(Shown in thousands)
June 30 December 31
Assets 1995 1994
- ------ -------- -----------
Current Assets
Cash $ 11,413 $ 8,063
Time Deposits 52,186 58,724
Marketable Securities 5,117 4,473
Accounts Receivable (net) 42,486 43,327
Inventories (Note 1)
Raw Materials 25,822 14,366
Finished Goods 28,269 18,437
Prepaid Expenses 3,528 2,739
-------- --------
Total Current Assets $168,821 $150,129
-------- --------
Property, Plant and Equipment $113,782 $102,788
Less Accumulated Depreciation (53,832) (50,323)
-------- --------
Net Property $ 59,950 $ 52,465
-------- --------
Investment in Affiliates $ 21,118 $ 20,139
-------- --------
Intangibles and Other Assets $ 8,558 $ 9,094
-------- --------
Total Assets $258,447 $231,827
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Accounts Payable and Accrued Expenses $ 31,313 $ 33,217
Short-Term Borrowings 40,523 18,504
Income Taxes Payable 8,869 12,807
-------- --------
Total Current Liabilities $ 80,705 $ 64,528
-------- --------
Deferred Income Taxes $ 35,413 $ 35,354
-------- --------
Long-Term Obligations $ 4,152 $ 4,152
-------- --------
Total Liabilities $120,270 $104,034
-------- --------
Stockholders' Equity
Preferred Stock (None Issued) $ --- $ ---
Common Stock 45,037 44,924
Additional Paid-in Capital 7,857 6,955
Retained Earnings 87,071 80,929
Cumulative Translation Adjustments (1,745) (5,015)
Other (43) ---
-------- --------
Net Stockholders' Equity $138,177 $127,793
-------- --------
Total Liabilities and Equity $258,447 $231,827
======== ========
The accompanying notes to the condensed financial statements are an integral
part of these balance sheets.
-3-
<PAGE>
Lawter International, Inc. and Subsidiaries
Condensed Statements of Cash Flows
(Shown in thousands)
Six Months Ended June 30
------------------------
1995 1994
-------- --------
Cash Flow from Operating Activities:
Net Earnings $ 15,140 $ 13,750
Adjustments to Reconcile Net Earnings to Net
Cash Provided/(Used) by Operating Activities-
Depreciation and Amortization 2,461 1,905
Deferred Income Taxes 33 ---
Undistributed Equity Income (1,010) (921)
Deferred Exchange Gain (Loss) (180) (311)
Purchase of Marketable Securities (783) (2,298)
Proceeds from Sales of Marketable Securities 1,000 ---
Net (Gain) Loss from Marketable Securities (861) 198
(Increase) Decrease in Current Assets-
Accounts Receivable 2,092 (4,657)
Inventories (19,727) (5,335)
Prepaid Expenses (682) (473)
Increase (Decrease) in Current Liabilities-
Accounts Payable and Accrued Expenses (2,739) (4,774)
Income Taxes Payable (4,017) 1,335
-------- --------
Net Cash Provided/(Used) by Operating Activities $ (9,273) $ (1,581)
-------- --------
Cash Flow from Investing Activities:
Expenditures for Property, Plant
& Equipment - Net $ (8,125) $ (5,019)
Loans to Officers (43) (58)
Repayment of Officers' Loans --- 1,633
Purchase of Business-Net of Cash --- (6,344)
-------- --------
Net Cash Provided/(Used) by Investing Activities $ (8,168) $ (9,788)
-------- --------
Cash Flow from Financing Activities:
Exercise of Stock Options $ 1,015 $ 476
Proceeds from Short-Term Borrowings 22,614 11,479
Payment of Short-Term Borrowings (756) ---
Cash Dividends Paid (8,997) (8,969)
-------- --------
Net Cash Provided/(Used) by Financing Activities $ 13,876 $ 2,986
-------- --------
Effect of Exchange Rate Changes on Cash $ 377 $ 209
-------- --------
Increase (Decrease) in Cash and Equivalents $ (3,188) $ (8,174)
Cash and Equivalents, Beginning of Period 66,787 77,488
-------- --------
Cash and Equivalents, End of Period $ 63,599 $ 69,314
======== ========
The accompanying notes to the condensed financial statements are an integral
part of these statements.
-4-
<PAGE>
Lawter International, Inc. and Subsidiaries
Notes to the Condensed Financial Statements
Note 1. Inventories
At year end, the Company takes a complete physical inventory to determine
inventory values. During interim periods, the Company uses a combination of
perpetual inventory records, physical inventories and the gross profit method
to determine inventory values.
The Company values the majority of its domestic inventories at last-in,
first-out (LIFO) cost which is not in excess of net realizable value. The
Company's other inventories are valued at the lower of first-in, first-out
(FIFO) cost or market.
Because the inventory determination under the LIFO method can only be made at
the end of each fiscal year based on the inventory levels and costs at that
point, interim LIFO determinations, including that at June 30, 1995, must
necessarily be based on management's estimates of expected year end inventory
levels and costs. Such future estimates of inventory levels and prices are
subject to many forces beyond the control of management.
Note 2. Earnings per Share
Earnings per share of common stock are computed on the weighted average shares
outstanding during the respective periods. Net earnings per share would not be
materially different from reported earnings per share if all outstanding stock
options were exercised.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Liquidity and Capital Resources
Lawter's cash and equivalents, net of short-term borrowings, decreased
$25,200,000 from $48,300,000 at December 31, 1994 to $23,100,000 at June 30,
1995. The decrease in cash and equivalents was due primarily to an increase in
inventory of some important raw materials due to a tightening of their supply,
along with expenditures for a new synthetic resin and printing ink vehicle
facility in Europe. Lawter anticipates maintaining a strong liquid position.
The capital expenditures planned for the near future include construction of
the new synthetic resin and printing ink vehicle facility in Europe, as well as
additions to and modernization of existing facilities elsewhere. The Company
currently anticipates using externally generated funds for the majority of
these capital expenditures.
-5-
<PAGE>
Results of Operations
SALES. The Company's consolidated net sales increased 13% in the second
quarter of 1995 when compared to the second quarter of 1994. Domestic average
selling prices increased 8%, while sales volume decreased 9% , resulting in a
1% decrease in domestic net sales. Reportable European net sales, which
included the sales of Cremona Resine since June 30, 1994 increased 37%.
Excluding the sales of Cremona Resine, European net sales increased 26% as a
result of a 4% increase in sales volume, a 13% increase caused by higher
exchange rates and an 8% increase in average selling prices. Consolidated net
sales for the first six months of 1995 increased 18% over consolidated net
sales for the first six months of 1994. Domestic average selling prices
increased 8%, while sales volume decreased 4%, resulting in a 4% increase in
domestic net sales. Net reportable European sales increased 43% including the
sales of Cremona Resine. Excluding the sales of Cremona Resine, European net
sales increased 31% as the result of an 11% increase in sales volume, a 12%
increase caused by higher exchange rates and a 6% increase in average selling
prices.
GROSS MARGINS. Gross margins as a percent of net sales were 26.6% and 30.8%
for the quarters ended June 30, 1995 and 1994, respectively, and 27.6% and
30.5% for the six months ended June 30, 1995 and 1994, respectively. The
lower gross margin percentages in both 1995 periods were due principally to
higher raw material costs and startup costs associated with the new resin plant
in Pleasant Prarie, Wisconsin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general
and administrative expenses include net foreign transaction exchange gains
(losses) of $(125,000) and $(304,000) for the three months ended June 30, 1995
and 1994, respectively, and $(61,000) and $23,000 for the six months ended June
30, 1995 and 1994, respectively. Transaction gains and losses result mainly
from the effect of the exchange rate fluctuations on transactions of the
foreign subsidiaries which are denominated in currencies other than the
subsidiaries' functional currencies. Excluding these net transaction gains
(losses), selling, general and administrative expenses as a percent of sales
were 10.3% and 10.5% for the three months and six months ended June 30, 1995,
respectively, and 11.4% and 11.3% for the three months and six months ended
June 30, 1994, respectively. The lower percentages in both periods of 1995
resulted primarily from sales increasing at a higher rate than selling, general
and administrative expenses.
INVESTMENT INCOME. Investment income in the quarter ended June 30, 1995
increased from the same period in 1994 due primarily to a $444,000 write up of
marketable securities to market in 1995 versus a $47,000 write up in 1994. For
the six months ended June 30, 1995, investment income increased compared to the
same period in 1994 due primarily to an $842,000 write up of marketable
securities to market in 1995 versus a $198,000 write down in 1994.
INCOME TAXES. The effective tax rates were comparable at 26.0% and 25.9% for
the three months ended June 30, 1995 and 1994, respectively and 26% for the six
months ended June 30, 1995 and 1994.
-6-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAWTER INTERNATIONAL, INC.
--------------------------
(Registrant)
August 11, 1995 /s/ Richard D. Nordman
- --------------- --------------------------
Richard D. Nordman
President
August 11, 1995 /s/ William S. Russell
- --------------- --------------------------
William S. Russell
Vice President, Finance
and Secretary
-7-
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0
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<OTHER-SE> 93,140
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